After weeks of debate, Republicans in DC revealed their big plan to overhaul the tax system on Thursday. The plan, which Trump is reportedly demanding be called the "The Cut Cut Cut Act," would cost the country an estimated $1.51 trillion over the next decade. So much for Republicans cutting the deficit.
In addition to slashing the number of existing tax brackets from seven to three, repealing the inheritance tax on multimillion-dollar estates, and cutting the corporate tax rate from the current 35 percent to just 20 percent, the plan also caps the mortgage interest deduction (MID) at $500,000, down from the existing cap of $1 million. Now, in theory, this sounds ok. Why should rich people get tax credits for million dollar McMansions? But in places like Seattle, where tear-downs can easily reach a half-million and the median home price is nearly $700,000, this could have a seriously negative impact, and not just on the rich, says Nathan Gorton, the Government Affairs Director at Washington REALTORS.
“At first glance it appears that middle class homeowners are hurt by this proposal," Gorton says. "Not only by capping MID, but by capping property tax deductions and doubling the standard deduction. We believe that our tax system should be reformed, but not on the backs of middle class homeowners."
Realty startup Redfin anticipates potential declines in middleclass homeownership as well. “The bill is a missed opportunity to make homeownership more affordable to more people," says Nela Richardson, Redfin's chief economist. "While the new $500,000 cap on the mortgage interest deduction is intended to limit the benefit for the wealthiest homeowners, it also limits the benefit for first-time buyers in expensive coastal markets where it’s hard to find a starter home at that price."
In response to the GOP tax plan, the S&P home-builders’ index immediately fell by 2.65 percent.
Note: The post has been updated with a quote from Nela Richardson.